I was chatting with a neighbor – Mike — over the weekend. Mike’s daughter is a senior in high school and looking at a lot of different colleges. Mike is a successful dentist but he is still worried about the economy and the costs of putting his daughter through school, even though he has already pre-paid her tuition through a state investment program.
Mike’s main concern is the cost of room and board, especially if his daughter lives off campus, as he expects she will by her sophomore year. Of course, he also worries about his daughter’s safety and comfort while she is away at school. I suggested to Mike that one way to assuage his fears might be to purchase a condo near his daughter’s school (wherever that may be). That would save him some money – perhaps earn him some money in the longer term – and ensure a good environment for his daughter when she moves away from home for the first time. Mike and I talked for a while about this, and the pros, cons and factors for consideration are worth revisiting here. If you have a child going away to school soon, you may also want to consider the following factors that may weigh for or against buying a condo or house for your child while he or she is away from home.
Building Equity Instead of Debt
If you can afford the down payment on a small house or condo near your child’s school, such a purchase will allow you to apply your child’s rent or student housing payment towards the mortgage, insurance and maintenance costs. Home values near colleges and universities tend to hold their value better than a lot of other areas so, after four years (or longer if you have other kids in the college pipeline), you will have an investment property that you can either sell or continue to rent out. Assuming housing costs of about $6,000 per year, you should also have at least an additional $24,000 in equity in the property. As an added perk, your child will also have enjoyed the benefit of not needing to move his or her property in and out of a dorm every August and May.
Is Your Child Mature Enough to Be Off Campus?
Before you can think about buying an off-campus property for your child, you also need to be 100% confident that your child is sufficiently mature to be trusted with your investment in a condo or house. For this reason, a condo usually will make more sense since condos are less isolated than houses. That said, if your child can be trusted (i) not to throw wild parties, (ii) to handle basic maintenance, and (iii) to alert you to problems that the “landlord” needs to fix, your child may be ready to live in an investment property.
Is Your Child Social Enough to Be Off Campus?
A big part of the college experience is the socialization process. If your child is not outgoing, living off campus is much more likely to increase his or her isolation. In contrast, if your child is too social, living off campus is likely to turn your investment property into Party Central. Neither is good for your child and the latter is not good for you as the property owner. If you feel that your child can balance his academic and social needs while living off campus, however, an investment property near your child’s school can provide your child with a refuge when he or she needs calm and you with the financial benefits of a second property.
The Ability to Spread Costs
Especially after a student’s freshman year of school, your child should know with whom he or she wants to room for sophomore year. If your mortgage is $1,000 per month and your child brings in two roommates for a rent of $500 per month each, your mortgage is covered by your child’s roommates. Of course, you need to take the time to get to know your child’s friends before you can invite them to be roommates, but that is not a bad idea anyway!
Learning to be a Homeowner
Living in your investment property will force your child to learn how to manage a home. There will be bills to be paid. Is your child sufficiently mature to pay the bills on his or her own? When a light bulb needs to be changed, your child will need to go to the store to buy a new one. If there is a condo association meeting, you can require your child to attend. It will make the transition to full independence after college a lot easier and you will be able to help out when responsibilities crop up at exam time (even if you are helping out from long distance by paying bills, etc.).
If you put your child’s name on your mortgage as a co-signer, every time you make a mortgage payment, you are helping your child to build credit. The same is true, of course, when your child makes a rent payment to a third party landlord, but in this case, your child is building credit while you build equity.
A Home after College
If your child is thinking about getting a job near his college upon graduation, you may want to sell the condo to your child upon graduation so that your child can continue to live in his or her college home during the first few years of his or her job. Being able to set your child up as a real property owner soon after college will allow your child to save money and build equity while most of his or her friends and peers are still paying rent.
How Many Kids do You Have?
If you have more than one child, owning an investment property near a college that they all might attend may offer a housing option for more than one of your children. As long as your kids get along, they may even enjoy being roommates for part of their college experience when their years at school overlap.
Admittedly, an investment property is not a housing option for every college student. If, however, you have one or more responsible kids attending a college in an area where you can afford an appropriate investment property, buying a house or condo in which your kids can live during college may be a great option for you to consider.
What do you think? If you could afford it, would you consider an investment property as a college housing option? Would you worry more if your kids were the caretakers of your investment property? Would you be concerned that your kids would miss out on the college life if they did not live at school?
Image courtesy of StuSeeger